How to actually get to win-win

Many companies and business development executives talk about the importance of a “win-win” philosophy in their relationships and negotiations.  They want to be successful and their partners to be successful in a true synergy.  But, what is their road map for getting to a win-win?  Too often, there isn’t a real methodology behind the talk.  Win-win is in danger before the race even starts.

Here’s an approach that can be applied to many different types of business arrangements to try to achieve that holy grail of win-win.  It has worked for me over many years of negotiating hundreds of deals.

1.  Spend extra time on the economics up front.  Since win-win is supposed to mean that each company makes more money with the partner than it would without, what modeling has been done to ensure that this becomes reality?  In practice, it is tempting to jump into papering a transaction before serious financial analysis has truly run its course.  Yet, a dedication to getting the numbers right will typically pay dividends.

2.  Respect, rather than take advantage of, your partner’s largest concerns.  This is harder than it sounds.  Every negotiation will involve a certain amount of chess and horse-trading.  But, if your partner reveals a walk away position or two that will be standard in its industry, respecting that position will instantly deepen the relationship.

3.  When it comes to the legalese, be prepared to settle on true neutrality.  The typical contract will favor the side of a deal that prepared it.  There isn’t necessarily anything wrong with that, as long as both sides understand what true neutrality means and, assuming the leverage is roughly equal, are willing to settle on it.  It means reciprocal representations, indemnifications and confidentiality provisions.  When two companies are located in different states, it often means choosing a third state’s law to govern the contract.

4.  Understand the details.  Is the devil really in the details?  Since execution is about details, the answer is almost always yes.  Sure, contracts get amended all the time, but the wrong starting point could kill the relationship before it has time to blossom.  Lawyers should understand the business purpose and the business people should understand the legalese.  Everyone needs to read the contract.

5.  Strive for a long-term contract.  As much as corporate America talks about long-term thinking and strategy, there are many forces that make this challenging.  Quarterly earnings calls for public companies emphasize 90 days of performance.  Revenue recognition rules can essentially encourage short-term deals.  It’s difficult to establish win-win in a short time frame.  Aim for a five-year term.  Expect, plan for and demand success.  Commitment facilitates win-win.

Ownership is (still) everything

With open source software being widely popular and Larry Lessig becoming a household name, is the concept of intellectual property ownership dead?


Absolutely not.


Inventors are still applying for patents as aggressively as ever.  Ownership comes up in almost every commercial sales contract, in every M&A transaction and in every IPO.  Today we even have companies claiming ownership in LinkedIn contacts.


This is all because ownership remains a great differentiator.  Generally, ownership entitles you not just to engage in some kind of lucrative activity.  It also allows you to prevent others from doing it.  Companies sue others for patent infringement or negotiate for ownership of software in commercial contracts because millions, potentially billions, of dollars are at stake.


How should companies react to this reality?


Embrace it.  Recognize this value and work to maximize it.  Invent, develop and patent using the best engineering talent you can find.  Once you have intellectual property, protect, nurture and grow it.  Negotiate hard when the topic of intellectual property comes up, because revenue and enterprise value are up for grabs.  


By acknowledging that ownership of intellectual property remains a foundational issue in company valuations, companies set the philosophical groundwork for business practices that will help them win.   

The death of the simple NDA

Non-disclosure agreements may never have really been simple, but they do seem to have become more complex in recent years.  No doubt part of the reason for this is the increasing sophistication of those writing and managing NDAs.  


Whatever the cause, the result is a substantial amount of risk for companies and individuals who dismiss NDAs as mere "boilerplate."  It is now as crucial as ever that those doing business with others use NDAs and, when using others' forms, read them carefully.


Here are a few challenging positions I have seen in NDAs that I suggest users approach with caution.  


1.  Assignment of intellectual property ownership.  An NDA is designed to simply allow two parties to start talking to one another about a deeper relationship.  Yet, in a couple cases, I have actually seen an NDA provide for one party's ownership of everything created over the course of the relationship.  No proprietary technology company will sign up for this.    


2.  Non-competition provisions.  Occasionally, NDAs will prevent one party from competing with the other.  This is another aggressive position with economic implications far beyond the NDA's typical "Let's talk" premise.  Non-competition provisions may also raise anti-trust issues.


3.  No-hire provisions.  Some NDAs will prohibit the solicitation of the other party's employees or customers.  Others will take the next step of seeking an actual no-hire clause.  Either provision will drive how the parties interact with one another.


4.  Lack of an independent development carve-out.  Most NDAs provide exceptions for what kind of information is deemed confidential.  A crucial exception that is sometimes missing regards independent development.  It's important to be able to retain the right to come up with good ideas independently of those that a vendor, customer, reseller or joint venture partner might have.


5.  Inappropriate period of protection.  NDAs will typically provide for a confidentiality period of about five years.  But, a business providing access to its most sensitive secret sauce that it expects to be valuable for decades would certainly want more protection than that.  It's important to think through how an NDA will be used in a given situation before signing up for a certain period of protection.


6.  Venue provisions.  Parties will often agree in advance where to litigate a dispute arising out of a contract.  But, this choice of location could create leverage for one party over the other.  Be thoughtful about agreeing to venue in your business partner's backyard if it's thousands of miles away from where you work. 


7.  Inconsistencies with other applicable documents.  If some other commercial agreement is signed as a result of the initial discussions, it will be important to consider how it relates to the NDA.  A new agreement with its own confidentiality provisions could create confusing conflicts with the NDA.  The NDA needs to be either completely superseded or carefully integrated into the new agreement.   

Difficulty closing the deal? Get a room.

No, not that kind of room.  This blog is intended to be interesting.  But not that interesting.

In my experience, the best way to get a challenging transaction signed is to gather all of the key decision makers on both sides in a conference room, laptops and blue pens in hand, but away from either party’s offices.  This group’s sole task is to close out all of the hard issues and actually sign the contract.  Both parties need to commit to this course of action in advance, allocating enough time to work through every open item.

There are several reasons that this approach tends to work.

First, “getting a room” forces prioritization.  If your organization is typical, you’re trying to do many things well.  Everything is a high priority.  Inevitably, this results in the more complex transaction not getting the consistent attention it needs to close.  The stops and starts are inefficient and often cause the deal to get bogged down unnecessarily.  Getting everyone together for as long as it takes ensures that the transaction gets the focus it deserves.

Second, using the conference room approach smokes out misalignment quickly, even within a negotiating team.  On each side of the negotiation there will be a divergence of skills.  This leads to divergence of opinion and behavior.  The lawyers will seem ready and willing to fight over minutiae and trade detailed redlines for months.  Meanwhile, one company’s CEO and VP of Sales may not have the same vision for a particular transaction.  It may not be clear who owns what issue, even on the same side of the table.  Sub-teams may have been created that drill into certain issues in a vacuum.  Getting everyone together encourages alignment by requiring each side to react and make decisions promptly in a coordinated manner.  Venture capitalist Mark Suster has written on a similar notion, which he calls “cutting out the middle man.”  

Third, this method encourages compromise, which is probably the single most significant requirement for the agreement to get signed and for the long term business relationship to succeed.   By committing to signature ahead of time, posturing becomes more difficult.  Teams are under pressure to compromise because leaving the conference sessions without signature will be considered a failure.  Usually, being face to face makes the discussion more cordial and friendly.  Developing that spirit of cooperation is much easier as you share meals and spend more time together.

Finally, gathering the key folks together in one place instantly cuts through bureaucratic systems that would otherwise cause tremendous delay.  Every company has systems and public companies will typically have strong internal controls.  Even when those responsible for these systems are communicative and aligned, getting through the line takes time.  Companies willing to close transactions in a conference room also have systems in place to streamline red tape when senior management requires it.  Whether that means sending a representative from the purchasing department or a revenue recognition specialist to the meeting, making clear to everyone that a contract is about to be signed can suddenly end the series of waiting games.

Try or revisit the all hands conference room approach.  In most situations, it will quickly pay meaningful dividends.